Apple contends that the vast majority of profits from the two Irish-registered units at the center of the case—Apple Sales International and Apple Operations Europe—was attributable to intellectual property developed in the U.S., and therefore not taxable in Ireland.

Ireland said the European Union overstepped its authority and misinterpreted Irish law when it ordered the country in August to recoup EUR13 billion ($13.57 billion) in allegedly unpaid taxes from Apple Inc.

The arguments, published Monday in a three-page summary paper, offer new details on Ireland's appeal to overturn the blockbuster decision by the European Commission, the EU’s executive arm. The Commission is expected to publish a redacted version of its decision as early as this week.

The tax bill is by far the highest that Brussels has so far pursued in a series of cases against corporate tax deals granted by EU countries. The Commission argues the deals constitute illegal “state aid” under EU law because they give specific firms advantages over rivals in the form of lower tax bills.

The EU push, which has also targeted American firms including McDonald's Corp. and Amazon.com Inc., has exposed growing tension over the huge stockpile of cash that Apple and other American companies hold offshore.

In the Apple case, the commission alleges that Ireland granted the iPhone maker illegal state aid by approving tax arrangements that allowed Apple to allocate the profit for two Irish-registered companies to a “head office” that had no tax residency anywhere. As a result those units paid 1% or less in income tax on European profits between 2003 and 2014.

Apple has disputed the validity of those figures, and said it was unfairly singled out by the EU despite receiving no special treatment by Irish authorities. It has said it also plans to appeal the decision.

The EU has said its case is built to withstand a court challenge.

Ireland says in the position summary that the rulings “did not depart from ‘normal’ taxation” because it followed a portion of Irish tax code that said nonresident companies should not pay income tax on profit that isn’t generated in Ireland.

Apple contends that the vast majority of profits from the two Irish-registered units at the center of the case—Apple Sales International and Apple Operations Europe—was attributable to intellectual property developed in the U.S., and therefore not taxable in Ireland. Apple has however deferred paying U.S. income tax on that profit, something it can do until the cash is repatriated.

Ireland also argues that the Commission “attempts to rewrite the Irish corporation tax rules” by insisting Ireland should have used the “arm’s-length principle,” a standard for setting commercial conditions between units of the same company as if they were independent, when evaluating Apple’s tax arrangements.

Source: wsj